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Find Out What a Company's Tax Disclosures Can Reveal About Its Quality of Earnings

20 Oct 2010

A company's tax disclosures reveal critical clues to its underlying health. Buyers and lenders use this information to evaluate the "quality" of a target's earnings and uncover hidden liabilities, while financial authorities use it to identify overly-aggressive tax planning and questionable transactions, Taxand US highlights the conditions revealed by tax disclosures and the abnormal indicators that call for further testing such as Effective Tax Rate, Cash Effective Rate Tax, Current and Deferred Tax and Valuation Allowance.

Taxand's Take

Tax disclosures are a frequently neglected yet fertile area of financial analysis. They reveal hidden characteristics that differentiate well-run companies from those that are not. Like a seemingly outwardly healthy patient, whose blood tests either confirm health or reveal otherwise, a company's health can be evaluated through its tax disclosures. Investors are encouraged to analyse and understand what drives a company's tax rate because it highlights quality of earnings characteristics that may not be apparent on the surface.

Read the full article from Taxand US here.

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Martin Williams
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Taxand's Take Author